[senttoschool]

>This is why you need unions.

What happens if the unions succeed in draining the profits, corporate has less money to invest in R&D, and a foreign efficient automaker comes in and takes all the market share away from the union-led automakers?

What happens then?

[kawhah]

The experience of Tesla clearly shows that this is a completely inaccurate picture of what motivates R&D. For decades big automakers took steady profits but declined to spend much on R&D, preferring to make incremental refinements to a conventional product. When they were challenged by an efficient upstart with an innovative product, the threat to their steady profits suddenly made them decide that they were prepared to spend on R&D.

[pembrook]

Except, what also allowed Tesla to grow was lack of unions and Chinese manufacturing.

Even in the US, Tesla workers make an average of $45/hr while Detroit automakers have to pay $67/hr due to the UAW.

I agree, incumbents are typically lazy and stifle innovation, however that’s not the full picture.

OP is correct. Unions are also interested in profit maximizing for their members. So a foreign competitor or upstart without union concerns is at an advantage. Even if you like unions and think they are generally good, this is an undeniable fact given the global market for consumer products.

[eesmith]

Has this example happened?

Most union workers don't want their employment to end. Why would they want to destroy the company this way?

Most large company CEOs can retire on the wealth they've already accumulated. Why should we assume they have higher long-term interest in the success of the company?

What is an example of union-led automaker? Perhaps some small cooperatively-owned car company somewhere? Or do you mean worker representation on the board, like at BMW in Germany, or how there was once a union seat on Chrysler's board?

What happens if a global investment company buys another company, stops all R&D to focus on short-term gain, runs the company into the ground, sells what's left, and makes an overall profit?

What happens then?

Oh, right, what happens is the investment company owners make a lot of money and the ex-employees get screwed. "Vulture capital" doesn't get that name out of love, and my life was negatively affected when KKR did a leveraged buyout of the non-union company where my father worked.

[Tade0]

If there are any profits to speak of, then clearly either already enough is spent on R&D or nothing at all.

[AnthonyMouse]

> If there are any profits to speak of, then clearly either already enough is spent on R&D or nothing at all.

What?

If you spent more on R&D you might make more sales, even if you are already profitable. You might also still be profitable (perhaps less so) if you spent less on R&D and made fewer sales. The sales numbers determine how many workers you need to make the stuff you're selling though.

It's also a common misunderstanding that a company is sustainable as long as its profit is above zero. It's only sustainable if its profit is above the market rate of return, because otherwise investors would make more money by shutting down the company and selling off its assets. If shareholders don't get a competitive return then they don't continue to lend you their money and you don't have a company. The management of the company can't change the economics.

[Tade0]

> What?

What part of my comment is not clear?

If you have profits, then you're not spending them on anything, like e.g. R&D, or it's already budgeted in, meaning the argument that increasing salaries hurts R&D is not sound.

You can say you can't increase salaries because you're reinvesting profits into R&D, but you can't use the same argument when there was a several year streak of profits.

[AnthonyMouse]

> If you have profits, then you're not spending them on anything, like e.g. R&D, or it's already budgeted in, meaning the argument that increasing salaries hurts R&D is not sound.

But you are spending them on something. Convincing shareholders not to shut down the company. It's like a loan, except that the terms are they get whatever profit your company makes instead of a fixed interest rate, but can call in the loan at any time and shut you down if the company doesn't make enough money.

You can't say that you don't need that unless you also don't the continued use of the shareholders' capital. You'd need another source of money to buy land and factory equipment etc., like a bank loan, and then you'd have to pay the interest on the loan instead.

> If you have profits, then you're not spending them on anything, like e.g. R&D, or it's already budgeted in, meaning the argument that increasing salaries hurts R&D is not sound.

The assumption you're making is that the money to increase salaries can only come out of profit and not by trading off against anything else, but that's not how it works. They're still going to try to maximize profit.

Maybe they used to have 15 models but they didn't all have the same profitability. At higher salaries only 10 of them could recover their R&D expenditure, so R&D for those lines gets cut, which means those lines get cut and a third of the workers lose their jobs. Meanwhile the company still turns a profit because the remaining lines are still profitable.

But all of this depends on the circumstances of the company. It could be that only one of the lines was making a significant profit and the others were barely breakeven, so at higher salaries 93% of the workers lose their jobs.

Or maybe there is only one product line. If they make a million widgets for $1500 and sell them for $2000 then they make $500M, and spending $150M on R&D to make the product a million customers want instead of half a million caused them to net $100M: They spent $150M to get $250M. But if labor costs increase so it costs them $1800 to make a widget customers will still only pay $2000 for, the R&D would still cost $150M but only recover $100M. So they cut the R&D rather than lose $50M, which cuts sales in half and that proportion of workers lose their jobs.

[aurareturn]

Profits will fund future R&D.

[mr_toad]

> What happens then?

Under-investment is how Detroit got the way it is already.

[jakupovic]

We get more efficient companies and life goes on.

[mgiampapa]

The 80s and early to mid 90s?

[IntelMiner]

The "free market" takes its course and unionized labor is (sadly) replaced by labor operating in companies with far worse tracks on things that detract from profits like "human rights" or "people not commiting suicide over work" [1]

https://en.wikipedia.org/wiki/Foxconn_suicides

[NonEUCitizen]

Every suicide, inside Foxconn or outside, is a tragedy.

But re: implying causation, note that the wikipedia article you cited mentions:

"ABC News[49] and The Economist[50] both conducted comparisons and found that although the number of workplace suicides at Foxconn was large in absolute terms, the suicide rate was actually lower than the overall suicide rate of China[51] or the United States."

[aurareturn]

So basically, go into protectionism mode?